CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) for United
Continental Holdings, Inc. and its primary operating subsidiary, United
Airlines, Inc. at 'B'. The Rating Outlook is Positive.

The rating affirmations follow United's underperformance over the past
year compared to Fitch's original expectations and compared to its
peers. The Positive Outlook reflects Fitch's continued expectations that
operating results and credit metrics at United should improve in the
near term. Expectations are supported by the company's sizeable cost
cutting efforts, the general improvement and reduced risk profile of the
North American airline industry, continued efforts to grow high margin
ancillary revenues, and ongoing efforts to improve the balance sheet.

Fitch revised its Outlook on United to Positive a year ago citing
progress that the company had made in moving past its integration
issues. Fitch still views the company's credit profile as improving, and
although the company's operational performance in 2013 represented an
incremental improvement as compared to 2012, weaker than expected
results in recent quarters indicate that further improvement is
warranted before the ratings are considered for an upgrade.

Credit concerns include United's high (but improving) leverage,
significant capital requirements in upcoming years to fund new aircraft
deliveries, the company's high cost structure as compared to North
American peers, and expectations for negative free cash flow in the near
term. Fitch is also cautious regarding apparent operational missteps
that have caused United to underperform compared to its peers in what
has been an otherwise relatively healthy aviation market. Other credit
concerns that are typical for the industry include the company's
sensitivity to variables like fuel prices, exogenous events (war or
terrorism), and the broader economic environment.

Key Rating Drivers:

Cost Reduction to Improve Margins:

Fitch views United's current cost cutting program to be a positive and
necessary step towards improving its credit profile. The company
announced the program last November with the goal to reduce operating
expenses by $2 billion annually by 2017. Half of the savings are slated
to come from lower fuel burn as United takes delivery of fuel efficient
new planes and implements other fuel saving techniques such as
retrofitting older aircraft with new winglets and slim line seats.

United expects the remainder to come from things like improved
productivity, maintenance programs, and sourcing/distribution. United
currently operates with one of the highest cost bases (as measured by
CASM ex-fuel) among its North American peers. Assuming that the program
is implemented as planned, Fitch expects operating margins to expand
over the intermediate term. United produced an EBITDAR margin of 15% in
2013, which was an improvement from 13.9 in 2012, but was lower than its
main rivals Delta and American (16.6% and 18.4% respectively).

Positive operating environment:

The Positive Outlook is also reflective of Fitch's view that the risk
profile of the North American airline industry is generally improving.
Consolidation and capacity constraint continue to be the overriding
themes that are causing the North American airlines to produce
consistently strong profits. Fitch expects industry-wide capacity
constraint to continue at least for the intermediate term, with the four
largest US Airlines (AAL, UAL, DAL, and LUV) planning minimal growth at
least for this year. Low capacity growth mixed with steady, if modest,
growth in demand for air travel should sustain yields and load factors
through 2014.

Pressured Pacific Markets:

Increasing competition across the Pacific may present a headwind in
2014. Chinese carriers have added significant capacity over the past
year and are expected to continue growing internationally as they
diversify away from an increasingly competitive domestic market in
China. Weakness in the Asian market impacts all three of the major
American carriers, but has the greatest effect on United, which has the
biggest presence there.

Trans Pacific travel accounted for 15.1% of United's 2013 operating
revenue compared to 10.8% for Delta and 3% for American. While the
increase in competition pressured yields in 2013 and the first quarter
of 2014, it is important to note that United's Pacific network remains
the best among the legacy carriers and is an important longer-term
advantage over both Delta and American.

Weak Free Cash Flow:

Fitch expects free cash flow to be negative in 2014 following two years
of negative FCF in 2013 and 2012. United expects gross capital spending
to be between $2.9 and $3.1 billion in 2014, up from $2.2 billion in
2013. Roughly two thirds of the projected spending will be related to
aircraft. As a result, Fitch expects free cash flow in 2014 to be
negative by $500-700 million, similar to 2013 when FCF was -$720 million.

Improving Credit Metrics:

Adjusted debt/EBITDAR as of March 31, 2014 was 5.4x, an improvement from
where it stood at 6.0x a year prior. Fitch expects leverage to continue
to improve through 2014, though it will largely be driven by growing
EBITDAR and not by further debt reduction. United will continue to take
out non-aircraft debt when possible.

In the first quarter of this year, United paid off $400 million of 8%
unsecured notes due in 2024, and extinguished $200 million in
convertible notes with common stock. The company may also decide to
pre-pay its $800 million 6.75% secured notes due in 2015 when they
become prepayable in September 2014. However, debt that is paid down
through the year will be largely offset by new debt taken on to fund
aircraft deliveries. Fitch notes that United's efforts to reduce debt
are flowing through to the income statement, with total interest charges
in 2013 down by $64 million from 2012.

Adequate Liquidity:

As of March 31st 2014, United maintained slightly more than $6 billion
in total liquidity including full availability under its $1 billion
revolver. Liquidity as a percentage of LTM revenue was 15.7%, which is
lower than some of United's North American peers, but is considered
adequate for the rating.

Fitch expects upcoming debt maturities to be manageable. Since United
will likely continue to fund future aircraft deliveries with debt, as it
has in the past, the company is expected to generate sufficient
operating cash flow to address debt maturities as they occur. Maturities
total $1.5 billion in 2014, $2 billion in 2015, and decline thereafter.

Recovery Ratings:

Fitch has upgraded the ratings on United's senior unsecured debt to
'B/RR4' from 'B-/RR5' and on United's subordinated unsecured debt to
'B-/RR5' from 'CCC+/RR6'. The recovery analysis reflects a scenario in
which a going concern enterprise value is allocated to the various debt
classes. The rating upgrades reflect United's growing EBITDA base
stemming from higher revenues and modestly expanding margins, leading to
a higher estimated enterprise value.

Fitch notes that although the current Recovery Ratings anticipate
average (RR4) recovery prospects for United's unsecured debt, recovery
percentages are highly sensitive to model inputs due to the heavy
weighting of United's capital structure towards secured debt. In a range
of recovery scenarios Fitch has calculated unsecured recovery
percentages both above and below the 'RR'4 range.

Rating Sensitivities:

Future actions that may individually or collectively cause Fitch to take
a positive rating action include:

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